NEVADA
|
8700
|
39-2052941
|
(State
of Incorporation)
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
Classification
Code Number)
|
Identification
No.)
|
Title of Each Class of Securities
|
Amount to be
|
Offering Price per
|
Aggregate
|
Amount of
|
||||||||||||
to be Registered
|
Registered(1)(2)
|
Share (2)
|
Offering Price
|
Registration Fee
|
||||||||||||
common
stock, $0.001 par value
|
$ | 30,000,000 | $ | 2,139 |
|
(1)
|
Includes
_____________ shares that the underwriter has the option to purchase to
cover over-allotments, if any. Includes common stock underlying
warrants to purchase _____________ shares issued to the
underwriter. Unless otherwise indicated, all share amounts and
prices assume the consummation of a reverse stock split, at a ratio of
1-to-___ to be effected prior to the effectiveness of the registration
statement, with the exact timing of the reverse stock split to be
determined by the Registrant’s Board of
Directors.
|
|
(2)
|
Estimated
solely for purposes of calculating the registration fee pursuant to Rule
457(o) under the Securities Act of 1933, as
amended.
|
PRELIMINARY
PROSPECTUS
|
SUBJECT
TO COMPLETION, DATED JUNE __,
2010
|
Per
Share
|
Total
|
|||||||
Public
offering price
|
$ | $ | ||||||
Underwriting
discount and commission
|
$ | $ | ||||||
Proceeds
to us, before expenses
|
$ | $ |
Page
|
||
PROSPECTUS
SUMMARY
|
3
|
|
RISK
FACTORS
|
8
|
|
USE
OF PROCEEDS
|
19
|
|
MARKET
FOR COMMON EQUITY SECURITIES AND DIVIDENDS
|
19
|
|
DETERMINATION
OF OFFERING PRICE
|
20
|
|
CAPITALIZATION
|
21
|
|
DILUTION
|
22
|
|
DESCRIPTION
OF BUSINESS
|
23
|
|
LEGAL
PROCEEDINGS
|
36
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
37
|
|
DIRECTORS,
EXECUTIVE OFFICERS AND CONTROL PERSONS
|
42
|
|
EXECUTIVE
COMPENSATION
|
46
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
51
|
|
TRANSACTIONS
WITH RELATED PERSONS
|
53
|
|
DESCRIPTION
OF SECURITIES
|
56
|
|
PLAN
OF DISTRIBUTION
|
59
|
|
LEGAL
MATTERS
|
63
|
|
EXPERTS
|
63
|
|
AVAILABLE
INFORMATION
|
63
|
|
INDEX
TO MARCH 31, 2010 FINANCIAL STATEMENTS
|
E-1 | |
INDEX
TO DECEMBER 31, 2009 FINANCIAL STATEMENTS
|
F-1 | |
EXHIBITS
|
II-5
|
|
●
|
A significant portion of our
business is in the process of scaling-up to commercial operations, causing
us to rely on outside sources of funding, rather than supporting ourselves
from our own operations.
|
|
●
|
We may be unable to raise debt or
equity funding, upon which we will be highly dependent, in the near
term.
|
|
●
|
Our poor liquidity may deter
existing or potential vendors, suppliers or customers from engaging in
transactions with us.
|
|
●
|
We depend on enzymes some of
which are in the research and development phase and currently represent a
significant and volatile expense in the CBE production process. Recent
developments have demonstrated that these costs should continue to drop
rapidly over the next two
years.
|
|
●
|
Our industry continues to develop
both existing and emerging competitors and competitive
technologies.
|
Common
stock offered by us
|
______________
shares, $.001 par value (or ______________ shares if the
underwriter exercises its over-allotment option to purchase additional
shares).
|
|
Common
stock to be outstanding after the offering
|
______________
shares (or ______________ shares if the underwriter exercises its
over-allotment option to purchase additional shares).
|
|
Over-allotment
option
|
We
granted the underwriter an option to purchase up to an additional
_____________ shares of common stock, within 45 days after the date
of this prospectus, in order to cover over-allotments, if
any.
|
|
Purchase
option
|
We
granted the underwriter an option to purchase, for its own account, up to
an additional _____________ shares of common stock which are
exercisable, in whole or in part commencing on a date which is one year
after the date of this prospectus and expiring on the five-year
anniversary of this prospectus, at an initial exercise price per Share of
$[__________], which is equal to [____]% of the initial public offering
price of the shares.
|
|
Offering
price
|
$________
per share.
|
|
Net
proceeds
|
The
net proceeds, after underwriting discounts and estimated expenses, to us
from the sale of the common stock offered hereby will be approximately
$_______ million. (If the underwriter exercises its
over-allotment option in full, we estimate that our net proceeds will be
approximately $_______ million.)
|
|
Use
of proceeds
|
We
intend to use the proceeds of the offering to provide the equity portion
of our investments in our first two or three commercial projects
together with supporting general corporate purposes including
overhead during the pre-revenue, construction and commissioning phases of
these projects.
|
|
Risk
Factors
|
See
“Risk Factors” starting on page 8 of this prospectus for a discussion
of factors you should carefully consider before deciding to invest in our
common stock.
|
|
Market
|
Our
common stock is quoted on the OTC Bulletin Board under the symbol
“KLEG”
|
Three Months Ended
|
||||||||||||||||||||
Year Ended December 31,
|
March 31,
|
|||||||||||||||||||
2007
|
2008
|
2009
|
2009
|
2010
|
||||||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||||||
Revenue
|
||||||||||||||||||||
Engineering
and management contracts
|
$ | 4,310,615 | $ | 4,009,825 | $ | - | $ | - | $ | - | ||||||||||
Biofuel
income
|
- | 120,000 | ||||||||||||||||||
Total
Revenue
|
4,310,615 | 4,009,825 | - | - | 120,000 | |||||||||||||||
Operating
Expenses
|
||||||||||||||||||||
Cost
of engineering and management contracts
|
2,904,619 | 1,959,202 | - | - | - | |||||||||||||||
Biofuel
costs
|
- | - | - | - | 60,000 | |||||||||||||||
General
and administrative
|
2,261,198 | 4,344,651 | 4,647,240 | 2,074,766 | 914,836 | |||||||||||||||
Research
and development
|
1,706,293 | 2,704,717 | 3,324,980 | 901,266 | 881,096 | |||||||||||||||
Total
Operating Expenses
|
6,872,110 | 9,008,570 | 7,972,220 | 2,976,032 | 1,855,932 | |||||||||||||||
Loss
from Operations
|
(2,561,495 | ) | (4,998,745 | ) | (7,972,220 | ) | (2,976,032 | ) | (1,735,932 | ) | ||||||||||
Other
Income (Expense):
|
||||||||||||||||||||
Other
income (expense)
|
3,428 | (165,723 | ) | (116,289 | ) | (17,522 | ) | (21,984 | ) | |||||||||||
Interest
income
|
- | (6,954 | ) | 48,522 | 42,587 | 718 | ||||||||||||||
Interest
expense
|
(298,497 | ) | (1,914,187 | ) | (194,679 | ) | (74,930 | ) | (40,313 | ) | ||||||||||
Total
Other Expense, Net
|
(295,069 | ) | (2,086,864 | ) | (262,446 | ) | (49,865 | ) | (61,579 | ) | ||||||||||
Loss
From Continuing Operations and Before
|
||||||||||||||||||||
Net
Loss Attributable to Noncontrolling Interest
|
(2,856,564 | ) | (7,085,608 | ) | (8,234,666 | ) | (3,025,897 | ) | (1,797,511 | ) | ||||||||||
Net
loss (income) attributable to noncontrolling interests
|
638,770 | 99,591 | 1,251,855 | 290,502 | 294,149 | |||||||||||||||
Loss
From Continuing Operations
|
(2,217,794 | ) | (6,986,017 | ) | (6,982,811 | ) | (2,735,395 | ) | (1,503,362 | ) | ||||||||||
Income
(loss) from discontinued operations
|
825,966 | (406,815 | ) | (12,000 | ) | (11,980 | ) | 25,832 | ||||||||||||
Net
Loss
|
$ | (1,391,828 | ) | $ | (7,392,832 | ) | $ | (6,994,811 | ) | $ | (2,747,375 | ) | $ | (1,477,530 | ) | |||||
Net
(Loss) Income Per Share, basic and diluted:
|
||||||||||||||||||||
Continuing
operations
|
$ | (0.22 | ) | $ | (0.62 | ) | $ | (0.19 | ) | $ | (0.11 | ) | $ | (0.03 | ) | |||||
Discontinued
operations
|
0.08 | (0.04 | ) | (0.00 | ) | (0.00 | ) | 0.00 | ||||||||||||
Total
|
$ | (0.14 | ) | $ | (0.65 | ) | $ | (0.19 | ) | $ | (0.11 | ) | $ | (0.03 | ) | |||||
Weighted
Average Common Shares Outstanding-Basic and Diluted
|
9,900,266 | 11,342,967 | 36,618,280 | 24,107,801 | 46,073,328 | |||||||||||||||
Net
loss used in computing pro forma net loss per share of common stock, basic
and diluted (unaudited)
|
$ | (1,391,828 | ) | $ | (7,392,832 | ) | $ | (6,994,811 | ) | $ | (2,747,375 | ) | $ | (1,477,530 | ) | |||||
Pro
forma net loss per share of common stock, basic and diluted
(unaudited)
|
$ | (0.14 | ) | $ | (0.65 | ) | $ | (0.19 | ) | $ | (0.11 | ) | $ | (0.03 | ) | |||||
Weighted
average common shares used in computing pro forma net loss per share of
common stock, basic and diluted (unaudited)
|
9,900,266 | 11,342,967 | 36,618,280 | 24,107,801 | 46,073,328 |
As of March 31, 2010
|
|||||||||
Actual
|
Pro-Forma
(1)
|
Pro-Forma
As Adjusted
(2) (3)
|
|||||||
Cash
and cash equivalents
|
$ | 370,785 | |||||||
Current
assets
|
787,563 | ||||||||
Total
assets
|
3,870,680 | ||||||||
Current
debt obligations
|
2,181,596 | ||||||||
Other
current liabilities
|
4,666,909 | ||||||||
Long-term
debt
|
172,005 | ||||||||
Common
stock
|
46,788 | ||||||||
Additional
paid-in capital
|
8,900,902 | ||||||||
Total
stockholders' (deficit) equity
|
(3,149,830 | ) |
|
-
|
The US federal government reduces
nationwide fuel standards
|
|
-
|
The price of ethanol and
co-products drop below that necessary to have profitable
operations
|
|
-
|
We are unable to obtain contracts
from third parties for our technology and
services
|
|
•
|
Build
cellulosic based ethanol plants
|
|
•
|
Support
our anticipated growth and carry out our business
plan
|
|
•
|
Continue
our research and development
programs
|
|
•
|
Protect
our intellectual property
|
|
•
|
Hire
top quality personnel for all areas of our
business
|
|
•
|
Address
and take advantage of competing technological and market
developments
|
|
•
|
Establish
additional collaborative
relationships
|
|
•
|
Successfully
obtain federal grants and loan
guarantees
|
|
•
|
Take
advantage of subsidies and federal tax
credits
|
|
•
|
changes in or interpretations of
foreign regulations that may adversely affect our ability to sell our
products or repatriate profits to the United
States;
|
|
•
|
the imposition of
tariffs;
|
|
•
|
the imposition of limitations on,
or increase of, withholding and other taxes on remittances and other
payments by foreign subsidiaries or joint
ventures;
|
|
•
|
the imposition of limitations on
genetically-engineered products or processes and the production or sale of
those products or processes in foreign
countries;
|
|
•
|
currency exchange rate
fluctuations;
|
|
•
|
uncertainties relating to foreign
laws and legal proceedings including tax and exchange control
laws;
|
|
•
|
the availability of government
subsidies or other incentives that benefit competitors in their local
markets that are not available to
us;
|
|
•
|
economic or political instability
in foreign countries;
|
|
•
|
difficulties in staffing and
managing foreign operations;
and
|
|
•
|
the need to comply with a variety
of U.S. laws applicable to the conduct of overseas operations, including
export control laws and the Foreign Corrupt Practices
Act.
|
High
|
Low
|
|||||||
September
30, 2008
|
$ | 0.43 | $ | 0.43 | ||||
December
31, 2008
|
$ | 4.52 | $ | 4.52 | ||||
March
31, 2009
|
$ | 1.60 | $ | 1.60 | ||||
June
30, 2009
|
$ | 1.60 | $ | 1.60 | ||||
September
30, 2009
|
$ | 1.60 | $ | 1.60 | ||||
December
31, 2009
|
$ | 20.00 | $ | 20.00 | ||||
March
31, 2010
|
$ | 20.00 | $ | 20.00 |
Reverse Stock Split Ratio
|
||||||||||||||||||||||||
Pre-Split
|
1:2
|
1:5
|
1:10
|
1:15
|
1:20
|
|||||||||||||||||||
Issued
and outstanding shares
|
47,151,106 | 23,575,553 | 9,430,221 | 4,715,111 | 3,143,407 | 2,357,555 | ||||||||||||||||||
Reserved
shares (1)
|
5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | ||||||||||||||||||
Authorized,
unissued and unreserved shares
|
147,848,894 | 171,424,447 | 185,569,779 | 190,284,889 | 191,856,593 | 192,642,445 | ||||||||||||||||||
Total
authorized shares
|
200,000,000 | 200,000,000 | 200,000,000 | 200,000,000 | 200,000,000 | 200,000,000 |
As of March 31, 2010
|
||||||||||
Actual
|
Pro-Forma
(1)
|
Pro-Forma
As Adjusted
(2) (3)
|
||||||||
Cash
and cash equivalents
|
$
|
370,785
|
|
|
||||||
Note
payable to bank with interest at 6.5%. The note is payable in twelve
monthly installments of $17,560 of principal and interest beginning March
2010 with any remaining unpaid principal and interest due March 2011, with
additional maturity extensions available. This note is secured by
substantially all assets of WBE and guaranteed by the Company and certain
WBE members.
|
1,362,704
|
|||||||||
Payable
to Hermanson Egge to replace overdue payables for construction services
with unsecured agreement, interest at 0% with payments of $70,000 in July
2009, $15,000 monthly from July 2009 to April 2010, $10,000 monthly from
May 2010 to August 2010, $20,000 monthly for September 2010 to November
2010 and $15,000 in December 2010.
|
115,000
|
|
||||||||
Note
payable to Lansing Securities Corp., interest at 10%. The
maturity date has passed and has been temporarily waived by the note
holder until further notice.
|
250,000
|
|||||||||
Note
payable to Universal Premium Acceptance Corp. for payment of insurance
premiums, interest at 9.24%, payable in monthly principal and interest
installments of $5,239.
|
15,479
|
|
||||||||
Note
payable to Shimadzu for lab equipment of $32,114, payable in monthly
principal and interest installments of $1,072, including interest at 13.6%
secured by equipment.
|
17,372
|
|
||||||||
Note
payable to First Insurance Funding Corporation for payment of director and
officer insurance premiums, payable in monthly installments of $3,692,
including interest at 9.1%.
|
56,585
|
|
||||||||
Subordinated
note payable to Randy Kramer and assigned to First National Bank, interest
at 5.0%, secured by accounts receivable of the Company, payable in monthly
installments of $10,000 per month plus interest beginning September 2009
and 5% of equity financings after February 2009.
|
536,461
|
|
||||||||
Stockholders'
Deficit
|
||||||||||
Common
stock, $0.001 par value; 150,000,000 actual shares authorized, 46,787,469
actual shares issued and outstanding; __________ pro-forma shares issued
and outstanding, ___________ pro forma as adjusted shares issued and
outstanding
|
46,788
|
|
||||||||
Additional
paid-in capital
|
8,900,902
|
|
||||||||
Accumulated
deficit
|
(10,744,915
|
)
|
|
|
||||||
Noncontrolling
interests
|
(1,352,605
|
)
|
|
|
|
|||||
Total
Stockholders' (Deficit) Equity
|
(3,149,830
|
)
|
|
|
|
|||||
|
|
|
||||||||
Total
Capitalization
|
$
|
(425,444
|
)
|
|
|
|
|
|
|
·
|
the
sale by us of shares in this offering at an assumed public offering price
of $_____ per share and the application of the estimated net proceeds to
us in this offering as described under “Use of Proceeds”;
and
|
|
·
|
the
estimated underwriting discounts and commissions and offering expenses
payable by us,
|
Shares Purchased
|
Percent
|
Total Consideration
|
Percent
|
Average Price Per Share
|
||||||
Existing
Stockholders
|
||||||||||
New
Investors
|
||||||||||
Total
|
|
|
|
|
|
•
|
Thermochemical conversion of
biomass into synthesis gas or “syngas” (a process often referred to as
“gasification”), followed by catalytic conversion of the syngas into mixed
alcohols that include ethanol and/or alkaline via modified chemistry;
or
|
•
|
Biomechanical conversion, which
is the enzymatic or chemical breakdown of biomass into component sugars,
followed by biological fermentation of the sugars into
ethanol.
|
|
●
|
A significant portion of our
business is in the process of scaling-up to commercial operations, causing
us to rely on outside sources of funding, rather than supporting ourselves
from our own operations.
|
|
●
|
We may be unable to raise debt or
equity funding, upon which we will be highly dependent, in the near
term.
|
|
●
|
Our poor liquidity may deter
existing or potential vendors, suppliers or customers from engaging in
transactions with us.
|
|
●
|
We depend on enzymes some of
which are in the research and development phase and currently represent a
significant and volatile expense in the CBE production process. Recent
developments have demonstrated that these costs should continue to drop
rapidly over the next two
years.
|
|
●
|
Our industry continues to develop
both existing and emerging competitors and competitive
technologies.
|
|
¨
|
2010 Standard: Based on
the Energy Information Administration (EIA) projections and industry
information, the EPA set the 2010 renewable volume obligation for
cellulosic ethanol at 0.004%. This percentage is based on expected
available supply of 5.04 million gallons. Because EPA expects 2.09 million
of these gallons to come from cellulosic diesel and bio-crude with higher
relative energy content, the agency often refers to the 5.04 million
gallons as “6.5 million ethanol equivalent
gallons.”
|
|
¨
|
Cellulosic Waiver
Credits: Cellulosic waiver credits (no longer called “allowances”)
will only be available for the current compliance year for which the EPA
has waived some portion of the cellulosic biofuel standard, they will only
be available to obligated parties, and they will be nontransferable and
nonrefundable. Further, obligated parties may only purchase waiver credits
up to the level of their cellulosic biofuel RVO less the number of
cellulosic biofuel Renewable Identification Numbers (“RINs”) that they
own. A company owning
cellulosic biofuel RINs and cellulosic waiver credits may use both
types of credits if desired to meet their Renewable Volume Obligation
(RVOs), but unlike RINs obligated parties will not be able to carry waiver
credits over to the next calendar year. For the 2010 compliance period,
since the cellulosic standard is lower than the level otherwise required
by EISA, the EPA is making cellulosic waiver credits available to
obligated parties for end-of-year compliance should they need them at a
price of $1.56 per gallon-RIN.
|
Figure
1: EISA Renewable Fuel Volume Requirements (billion
gallons)
|
||||||||||||||||
Year
|
Cellulosic
biofuel
requirement
|
Biomass-based
diesel
requirement
|
Advanced
biofuel
requirement
|
Total
renewable
fuel
requirement
|
||||||||||||
2008
|
n/a | n/a | n/a | 9.00 | ||||||||||||
2009
|
n/a | 0.50 | 0.60 | 11.10 | ||||||||||||
2010
|
0.10 | 0.65 | 0.95 | 12.95 | ||||||||||||
2011
|
0.25 | 0.80 | 1.35 | 13.95 | ||||||||||||
2012
|
0.50 | 1.00 | 2.00 | 15.20 | ||||||||||||
2013
|
1.00 | a | 2.75 | 16.55 | ||||||||||||
2014
|
1.75 | a | 3.75 | 18.15 | ||||||||||||
2015
|
3.00 | a | 5.50 | 20.50 | ||||||||||||
2016
|
4.25 | a | 7.25 | 22.25 | ||||||||||||
2017
|
5.50 | a | 9.00 | 24.00 | ||||||||||||
2018
|
7.00 | a | 11.00 | 26.00 | ||||||||||||
2019
|
8.50 | a | 13.00 | 28.00 | ||||||||||||
2020
|
10.50 | a | 15.00 | 30.00 | ||||||||||||
2021
|
13.50 | a | 18.00 | 33.00 | ||||||||||||
2022
|
16.00 | a | 21.00 | 36.00 | ||||||||||||
2023+
|
b | b | b | b |
|
•
|
Macroeconomic factors affecting
the global supply of, and demand for and price of oil, including
significantly increased demand for oil from developing countries whose
economies are growing at high rates, such as China and India, coupled with
uncertain supplies of oil from sources throughout the
world;
|
|
•
|
Policies and initiatives
developed across the world aimed at reducing dependence on imported
sources of oil, particularly from countries and regions that have
exhibited the greatest level of
instability;
|
|
•
|
Increasing awareness and
incorporation of Flexible Fuel Vehicles (“FFVs”), into the world auto
supply that are capable of operating on various blends of gasoline and
ethanol;
|
|
•
|
Broadening development of the
required infrastructure to support FFVs, including expansion of
distribution channels and retrofitting wholesale and retail points of
distribution.
|
|
•
|
Strong
legislative and government policy support—the EISA mandates minimum annual
usage renewable fuel of 36 billion gallons per year by
2022.
|
|
•
|
Expansion of
gasoline supply—By
blending ethanol into gasoline, refiners can expand the volume of fuel
available for sale especially when refinery capacity and octane sources
are limited. According to the Department of Energy, or DOE, between 1985
and 2005, petroleum refining capacity in the United States increased only
9.7%, while domestic petroleum demand increased by 32% during the same
period. We believe that increased pressure on domestic fuel refining
capacity will result in greater demand for
ethanol.
|
|
•
|
Favorable tax
treatment—There are
several tax incentives for ethanol production and distribution, especially
for those cellulosic ethanol plants using the enzymatic hydrolysis
method.
|
|
•
|
Environmental
benefits—Ethanol, as
an oxygenate, reduces tailpipe emissions when added to gasoline. The
additional oxygen in the ethanol results in a more complete combustion of
the fuel in engine cylinders, resulting in reduced carbon monoxide and
nitrogen oxide emissions. Prior federal programs that mandated the use of
oxygenated gasoline in areas with high levels of air pollution spurred
widespread use of ethanol in the United
States.
|
|
•
|
Geopolitical
concerns—The United
States currently imports approximately 60% of its oil needs, a dependency
that is expected to continue to increase. Political unrest and attacks on
oil infrastructure in the major oil-producing nations, particularly in the
Middle East, have periodically disrupted the flow of oil, which has added
a “risk premium” to world oil prices. At the same time, developing nations
such as China and India have substantially increased their demand for oil.
Oil prices currently exceed $70 per barrel and exceeded $140 per barrel in
2008. As a domestic, renewable source of energy, ethanol can help to
reduce American dependence on foreign
oil.
|
|
•
|
Ethanol as a
gasoline substitute—Ethanol’s role in the United
States is gradually shifting from that of an oxygenate/gasoline additive
to a true gasoline complement/replacement. Most ethanol currently produced
in the United States is a fuel blend of 10% ethanol and 90% gasoline
called E10, which is used as an oxygenate/fuel additive. Automakers in the
United States have been accelerating their work with FFV programs,
according to the NEVC, resulting in an expanded fleet of vehicles capable
of using a fuel blend of 85% ethanol and 15% gasoline, or E85. Future
widespread adoption of FFV’s could significantly increase ethanol demand
and reduce the consumption of
gasoline.
|
|
•
|
Low-cost,
abundant sources of feedstocks that have no competitive food
use—According to a
joint report of the DOE and the United States Department of Agriculture,
or USDA, issued in 2005, land resources in the United States are capable
of producing a sustainable supply of 1.3 billion tons per year of
cellulosic biomass. The same report concluded that 1 billion tons of
cellulosic biomass would be sufficient to displace 30% or more of the
present petroleum consumption in the United States. In addition, according
to an analysis by the Natural Resources Defense Council published in 2004,
cellulosic biofuels could supply more than half of current transportation
fuel needs in the United States by 2050, without decreasing the production
of food and animal feed.
|
|
•
|
Reduced
susceptibility to volatile commodity price risks—We believe that most biomass
feedstocks can be obtained at lower cost and on more favorable contractual
terms compared to the cost of corn feedstock. In addition, many cellulosic
feedstocks contain lignin (the high energy component of plant biomass)
which could be used to reduce operating costs by eliminating or reducing
the use of natural gas and other external fuel sources. With our enzymatic
hydrolysis technology, the lignin by-product is an additional revenue
source. This is unlike cellulosic technology firms that use acid in their
technology process or use gasification. We also expect that cellulosic
ethanol production will have much less exposure to market and commodity
volatility than corn, natural gas, transportation, and corn
by-products.
|
|
•
|
Superior
carbon emissions profile that benefits the environment—Cellulosic ethanol is expected
to produce less harmful greenhouse gas emissions than corn ethanol and
gasoline. According to a report by Argonne National Laboratory, corn
ethanol reduces greenhouse gas by 18% to 29% per vehicle mile
traveled as compared to gasoline, while cellulosic ethanol reduces
greenhouse gas emissions by approximately 85% per vehicle mile
traveled. Other advantages may include additional revenues through the
sale of carbon credits.
|
|
•
|
Proximity to
end-user markets—
Unlike grain-based ethanol facilities, cellulosic ethanol production
facilities will be located closer to end-user markets, potentially
reducing transportation
costs.
|
Contractual
Obligations
|
|||||||||||||||
The
following table lists our continuing operations' significant contractual
obligations and their future payments at March 31,
2010:
|
|||||||||||||||
Less
than
|
More
than
|
||||||||||||||
Contractual
Obligations
|
Total
|
1
Year
|
1-3
Years
|
3-5
Years
|
5
Years
|
||||||||||
Note
payable to bank (1)
|
$
|
1,362,704
|
$
|
1,362,704
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
Payable
to supplier (2)
|
115,000
|
110,495
|
4,505
|
-
|
-
|
||||||||||
Note
payable to third party (3)
|
250,000
|
250,000
|
-
|
-
|
-
|
||||||||||
Equpment
and insurance financings (4)
|
89,436
|
89,436
|
-
|
-
|
-
|
||||||||||
Subordinated
note payable (5)
|
536,461
|
368,961
|
167,500
|
-
|
-
|
||||||||||
Operating
leases
|
60,534
|
21,426
|
27,108
|
12,000
|
-
|
||||||||||
Total
|
$
|
2,414,135
|
$
|
2,203,022
|
$
|
199,113
|
$
|
12,000
|
$
|
-
|
|||||
(1)
Note payable to bank with interest at 6.5%. The note is payable in twelve
monthly installments of $17,560 of principal and interest beginning March
2010 with any remaining unpaid principal and interest due March 2011, with
additional maturity extensions available. This note is secured by
substantially all assets of WBE and guaranteed by the Company and certain
WBE members.
|
|||||||||||||||
(2)
Payable to Hermanson Egge to replace overdue payables for construction
services with unsecured agreement, interest at 0% with payments of $70,000
in July 2009, $15,000 monthly from July 2009 to April 2010, $10,000
monthly from May 2010 to August 2010, $20,000 monthly for September 2010
to November 2010 and $15,000 in December 2010.
|
|||||||||||||||
(3)
Note payable to Lansing Securities Corp., interest at 10%. The
maturity date has passed and has been temporarily waived by the note
holder until further notice.
|
|||||||||||||||
(4)
Note payable to Universal Premium Acceptance Corp. for payment of
insurance premiums, interest at 9.24%, payable in monthly principal and
interest installments of $5,239; Note payable to Shimadzu for lab
equipment of $32,114, payable in monthly principal and interest
installments of $1,072, including interest at 13.6% secured by equipment;
Note payable to First Insurance Funding Corporation for payment of
director and officer insurance premiums, payable in monthly installments
of $3,692, including interest at 9.1%.
|
|||||||||||||||
(5)
Subordinated note payable to Randy Kramer and assigned to First National
Bank, interest at 5.0%, secured by accounts receivable of the Company,
payable in monthly installments of $10,000 per month plus interest
beginning September 2009 and 5% of equity financings after February
2009.
|
Name
|
Age
|
Position
and Experience
|
||
Thomas
Schueller
|
57
|
Mr.
Schueller has extensive business experience, including 10 years as a CPA
with Arthur Andersen. Mr. Schueller was a financial officer of RPM Pizza,
Inc. and developed and owned several businesses in Europe and the US. He
was also the national President of Pizza World GmbH, and has 17 years of
ownership of real estate development and financial companies in the United
States. From 1992 until 2008, Mr. Schueller owned and operated
Equimax Properties LLC and Buyer’s Resource Realty. Mr. Schueller received
his MBA in Finance from Michigan State University. Mr.
Schueller currently provides management consulting services to the Company
pursuant to a consulting agreement described below. During his career, Mr.
Schueller acquired managerial and financial experience relevant to his
service as the financial expert on the Company's Audit
Committee.
|
||
Alan
Rae
|
51
|
Mr.
Rae has over twenty-five years of diverse experience in the automotive,
financial and service industries as a consultant, business owner, and
manager. Mr. Rae was a founder and served as CEO of O2Diesel Corp. and its
preceding companies since 1997. O2Diesel Corp. filed for
Chapter 11 bankruptcy and was sold out of bankruptcy in
2009. Mr. Rae had also been CEO of World Class
Driving until it was sold in 2010. Mr. Rae is currently a
paid consultant to Pelly Management and the Company. Mr. Rae
has also been a Director of Reostar Energy since 2007. Mr. Rae
studied Mechanical Engineering at Paisley College of Technology (now the
University of the West of Scotland), Scotland. Mr. Rae brings to the
Board his significant managerial, financial, corporate governance and
international business experience.
|
||
Alain
Vignon
|
40
|
Mr.
Vignon is a managing partner of Niton Capital Partners SA, a corporate
finance and investment company active mostly in the Energy and
Infrastructure industries. Prior to joining the group in 2007, Mr. Vignon
headed the Corporate Finance division at LCF Rothschild in Geneva from
2002 to 2007. He advised several large companies (private or public) and
private equity firms in sectors such infrastructure, energy, industrial
and telecommunication mainly in Europe and Africa. Before joining LCF
Rothschild, Mr. Vignon worked at JPMorgan and UBS Warburg in the
Investment Banking division, in London and Zurich, in structured and
acquisition finance from 1994 to 2001. Mr. Vignon brings to the Board his
significant financial and investment banking
experience.
|
Pedro
de Boeck
|
46
|
Mr.
de Boeck has dedicated 20 years of his career in the management consulting
business. Until the end of 2007, Mr. de Boeck was a partner of McKinsey
& Company, an international consulting firm. During his 15 years at
McKinsey, he has advised Senior Executives around the world, with a
special focus on telecom and postal companies. He also was the worldwide
leader of the postal practice of McKinsey & Company. From 1986 to 1990
he worked for Strategic Planning Associates, and was based in London and
in Singapore. Mr. de Boeck is now an active investor, and currently sits
on the Board of Directors of Briarde SA, Warcoing Sucre SA and Pajelima
bvba. During 2007 and 2008, Mr. de Boeck sat on the Board of
Directors of McKinsey & Company, Iscal Sugar SA and Cospaia
SA . Mr. de Boeck graduated in 1986 from the Solvay business
school of the Free University of Brussels (Magna Cum Laude) and holds an
MBA degree from INSEAD (1991). Mr. de Boeck brings to the Board
his significant consulting and investment advisor experience.
|
||
Alain
P. Poncelet
|
41
|
Mr.
Poncelet is a founding partner of Pluris Sustainable Investments SA, an
Investment Management company focused on investing in sectors and
opportunities at the forefront of the green and/or sustainable
development. Mr. Poncelet started his career in Brussels in agricultural
products trading. He moved to Mexico in 1993, where he specialized in
coffee trading, ultimately taking responsibility for the Mexican coffee
operation of a multinational group. He then joined the Starbucks Coffee
Company, Switzerland in 2003 where, as Managing Director and Vice
President, Coffee & Tea, he was responsible for the global coffee and
tea procurement worldwide and the management of the company's Farmer
Support Centers in Central America and Africa. Mr. Poncelet brings to the
Board his significant investment advisor and international operations
experience.
|
Name
|
Age
|
Position
and Experience
|
||
Thomas
Schueller
|
57
|
Executive
Chairman of the Board
See
biographical information in “Directors” above.
|
||
Peter
Gross
|
41
|
Chief
Executive Officer, President and Treasurer
Mr.
Gross has 15 years of international experience in the specialty chemical
and biofuels industry as a project, business and marketing manager,
consultant, business owner and investor. Mr. Gross founded, and
since 2004 has served as managing partner of, add blue Consultoria Ltda.,
a consulting company established to develop business opportunities in the
renewable energy and biofuels markets. From 2007 through 2008,
he was involved in the sourcing, developing and managing of greenfield
sugarcane projects for Alterna Agri-Energy Ltda. From 2006
through 2007, he engaged in general management and business development
relating to renewable
energies including biofuels for Conergy Group and from 2004
through 2007 he provided general management and business development
services to 02Diesel Ltda. Mr. Gross speaks Portuguese, German,
English and French and holds a degree in Business Administration from
Bayreuth University in Germany.
|
David
Litzen
|
50
|
Vice
President of Engineering & Chief Technology Officer
Mr.
Litzen has served in his current position since January
2006. From 2004 to 2006, Mr. Litzen served as a consultant to
the biofuels and petrochemical industries under the company name of
Virtual Ideality, Inc. On January 1st, 2006 he became employed by KL
Process Design Group, a company which he also co-founded, as Vice
President of Engineering. He has 28 years experience in the petrochemical
industry, including 20 years as a Shell Oil senior process engineer and
consultant. He has extensive background and experience in process
simulation, plant process design, and process de-bottlenecking. Mr. Litzen
is a registered Professional Engineer and holds a B.S. degree in chemical
engineering.
Effective
March 2, 2010, David Litzen
resigned as a Director of the Company. Mr. Litzen served as a
Director of the Company since October 1, 2008 and was a member of the
Nominating Committee.
|
||
Dennis
Harstad
|
50
|
Vice
President of Plant Operations and Secretary
Mr.
Harstad has served in his current position since January
2006. He was the Plant Manager and Construction Manager for
Midwest Renewable Energy from 2004 to 2006 and member of the board of
directors from 2004 to 2007. He also served as a manager of WBE since
2006. Mr. Harstad has over 28 years experience in agricultural and
renewable energy business.
|
||
Thomas
Bolan
|
59
|
Acting
Chief Financial Officer
Mr.
Bolan has served in his current position since April 2009. From
October 2007 through December 2008, he was the Corporate Controller for
O2Diesel Corporation. Prior to that, from 2002 through 2007, he was a
consultant with Resources Connection, a publicly-traded international
professional services firm. Mr. Bolan earned his CPA
certificate in 1978 and holds a Masters Degree in Finance/Economics from
the University of Connecticut.
|
Name and
Principal Position
|
Year
|
Salary
($) (2)
|
Bonus
($) (3)
|
Stock
Awards
($) (3)
|
Option
Awards
($) (3)
|
Non-Equity
Incentive
Plan
Compensa-
tion ($) (3)
|
Changes in
Pension
Value and
Nonqualified
Deferred
Compensa-
tion Earnings
($) (3)
|
All Other
Compensa-
tion($) (4)
|
Total ($)
|
|||||||||||||||||||||||||
(a)
|
(b)
|
(c
)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||
Steven
Corcoran (1)
|
2009
|
$ | 134,546 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,329 | $ | 136,875 | |||||||||||||||||
President
and CEO
|
2008
|
$ | 115,136 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,861 | $ | 117,997 | |||||||||||||||||
David
Litzen
|
2009
|
$ | 135,426 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 9,161 | $ | 144,586 | |||||||||||||||||
Vice
President of Engineering
|
2008
|
$ | 129,246 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,184 | $ | 132,430 | |||||||||||||||||
Dennis
Harstad
|
2009
|
$ | 126,485 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 7,328 | $ | 133,812 | |||||||||||||||||
Vice
President of Operations
|
2008
|
$ | 118,997 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,941 | $ | 121,938 | |||||||||||||||||
Randy
Kramer (1)
|
2009
|
$ | 144,794 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 557 | $ | 145,352 | |||||||||||||||||
President
and CEO
|
2008
|
$ | 127,723 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 3,160 | $ | 130,883 |
Benefits
and Payments
Upon
Termination
|
Voluntary
Termination
On
12/31/09($)(1)
|
Termination
for
Cause on
12/31/09($)
|
Involuntary
Termination
without
Cause
on
12/31/09($)(1)
|
Retirement
at
“Normal
Retirement
Age”
on
12/31/09($)
|
Disability
on
12/31/09($)(2)
|
Death
on
12/31/09($)(2)
|
||||||||||||||||||
Steven
Corcoran
|
||||||||||||||||||||||||
Compensation
- Salary
|
$ | - | $ | - | $ | 49,006 | $ | - | $ | 30,000 | $ | 30,000 | ||||||||||||
Compensation
- Bonus
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Incentives
and Benefits
|
$ | - | $ | - | $ | 1,218 | $ | - | $ | - | $ | - | ||||||||||||
David
Litzen
|
||||||||||||||||||||||||
Compensation
- Salary
|
$ | - | $ | - | $ | 46,575 | $ | - | $ | 30,000 | $ | 30,000 | ||||||||||||
Compensation
- Bonus
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Incentives
and Benefits
|
$ | - | $ | - | $ | 3,788 | $ | - | $ | - | $ | - | ||||||||||||
Dennis
Harstad
|
||||||||||||||||||||||||
Compensation
- Salary
|
$ | - | $ | - | $ | 43,500 | $ | - | $ | 30,000 | $ | 30,000 | ||||||||||||
Compensation
- Bonus
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Incentives
and Benefits
|
$ | - | $ | - | $ | 1,730 | $ | - | $ | - | $ | - | ||||||||||||
Randy
Kramer
|
||||||||||||||||||||||||
Compensation
- Salary
|
$ | - | $ | - | $ | 225,000 | $ | - | $ | 30,000 | $ | 30,000 | ||||||||||||
Compensation
- Bonus
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Incentives
and Benefits
|
$ | - | $ | - | $ | 1,518 | $ | - | $ | - | $ | - |
Name
and Address of Beneficial Owner (1)
|
Common
Stock
|
%
of Class
|
||||||
5%
Stockholders:
|
||||||||
Niton
|
9,695,568 | 20.0 | % | |||||
Green
Fund
|
9,590,341 | 19.8 | % | |||||
Pedro
de Boeck (4)
|
5,227,272 | 10.8 | % | |||||
Randy
Kramer
|
4,356,337 | 9.0 | % | |||||
Warcoing
Sucre SA (4)
|
2,954,545 | 6.1 | % | |||||
Pelly
Management
|
2,886,364 | 6.0 | % | |||||
34,710,427 | 71.7 | % | ||||||
Directors and Named Executive
Officers (defined above):
|
||||||||
David
Litzen
|
4,356,337 | 9.0 | % | |||||
Steven
Corcoran (2)
|
594,046 | 1.2 | % | |||||
Dennis
Harstad
|
594,046 | 1.2 | % | |||||
Peter
Gross (2)
|
- | 0.0 | % | |||||
Thomas
Schueller
|
- | 0.0 | % | |||||
Thomas
Bolan
|
- | 0.0 | % | |||||
Alain
Vignon
|
- | 0.0 | % | |||||
Alan
Rae
|
- | 0.0 | % | |||||
All
directors and executive officers as a group (8 persons)
|
5,544,429 | 11.5 | % |
Per Share
|
Total (without over-
allotment)
|
Total (with over-
allotment)
|
||||
Price
to public
|
||||||
Underwriting
discount (1)
|
||||||
Proceeds
to us, before expenses (2)
|
|
|
|
Page
|
|
Balance
Sheets at March 31, 2010 and December 31, 2009
|
E-2
|
Statements
of Operations for the three months ended March 31, 2010 and
2009
|
E-3
|
Statement
of Changes in Shareholders’ Deficit
|
E-4
|
Statements
of Cash Flows for the three months ended March 31, 2010 and
2009
|
E-5
|
Notes
to Financial Statements
|
E-6
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
|
||||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
370,785
|
$
|
65,049
|
||||
Trade
receivables, net of allowance for doubtful accounts of $393,840 and
$393,840, respectively
|
-
|
35,000
|
||||||
Accounts
receivable - related parties
|
61,034
|
1,034
|
||||||
Inventories
|
14,975
|
14,975
|
||||||
Prepaid
expenses and other assets
|
250,769
|
138,765
|
||||||
Deferred
issuance costs
|
90,000
|
135,000
|
||||||
Total
Current Assets
|
787,563
|
389,823
|
||||||
Non-Current
Assets
|
||||||||
Property,
Plant and Equipment, Net
|
3,083,117
|
3,501,197
|
||||||
Total
Assets
|
$
|
3,870,680
|
$
|
3,891,020
|
||||
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
Current
Liabilities
|
||||||||
Current
maturities of long-term debt
|
$
|
1,812,635
|
$
|
1,851,389
|
||||
Current
maturities of subordinated debt-related party
|
368,961
|
262,500
|
||||||
Accounts
payable
|
1,674,264
|
1,672,156
|
||||||
Accounts
payable-related parties
|
40,753
|
48,234
|
||||||
Billings
in excess of costs and estimated earnings on uncompleted
contracts
|
1,640,588
|
1,640,588
|
||||||
Accrued
payroll
|
148,593
|
203,161
|
||||||
Other
liabilities
|
831,573
|
770,052
|
||||||
Current
liabilities of discontinued operations
|
331,138
|
356,970
|
||||||
Total
Current Liabilities
|
6,848,505
|
6,805,050
|
||||||
Long-term
debt, less current maturities
|
4,505
|
9,121
|
||||||
Subordinated
debt-related party
|
167,500
|
297,500
|
||||||
Total
Long-Term Debt
|
172,005
|
306,621
|
||||||
Stockholders'
Deficit
|
||||||||
Common
stock, $0.001 par value; 150,000,000 shares authorized;
46,787,469 and 45,029,894 shares issued and outstanding as of March 31,
2010 and December 31, 2009, respectively
|
46,788
|
45,029
|
||||||
Additional
paid-in capital
|
8,900,902
|
7,060,161
|
||||||
Accumulated
deficit
|
(10,744,915
|
)
|
(9,267,385
|
)
|
||||
Noncontrolling
interest
|
(1,352,
605
|
)
|
(1,058,456
|
)
|
||||
Total
Stockholders' Deficit
|
(3,149,830
|
)
|
(3,220,651
|
)
|
||||
Total
Liabilities and Stockholders' Deficit
|
$
|
3,870,680
|
$
|
3,891,020
|
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
(Restated)
|
||||||||
Revenue
|
||||||||
Biofuel
income
|
$
|
120,000
|
$
|
-
|
||||
Total
Revenue
|
120,000
|
-
|
||||||
Operating
Expenses
|
||||||||
Biofuel
costs
|
60,000
|
-
|
||||||
General
and administrative
|
914,836
|
2,074,766
|
||||||
Research
and development
|
881,096
|
901,266
|
||||||
Total
Operating Expenses
|
1,855,932
|
2,976,032
|
||||||
Loss
from Operations
|
(1,735,932
|
)
|
(2,976,032
|
)
|
||||
Other
Income (Expense):
|
||||||||
Other
expense
|
(21,984
|
)
|
(17,522
|
)
|
||||
Interest
income
|
718
|
42,587
|
||||||
Interest
expense
|
(40,313
|
)
|
(74,930
|
)
|
||||
Total
Other Expense, Net
|
(61,579
|
)
|
(49,865
|
)
|
||||
Loss
From Continuing Operations and Before Net Loss Attributable to
Noncontrolling Interest
|
(1,797,511
|
)
|
(3,025,897
|
)
|
||||
Net
loss attributable to noncontrolling interests
|
294,149
|
290,502
|
||||||
Loss
From Continuing Operations
|
(1,503,362
|
)
|
(
2,735,395
|
)
|
||||
Income
(loss) from discontinued operations
|
25,832
|
(11,980
|
)
|
|||||
Net
Loss
|
$
|
(1,477,530
|
)
|
$
|
(
2,747,375
|
)
|
||
Net
(Loss) Income Per Share, basic and diluted:
|
||||||||
Continuing
operations
|
$
|
(0.03
|
)
|
$
|
(0.11
|
)
|
||
Discontinued
operations
|
0.00
|
0.00
|
||||||
Total
|
$
|
(0.03
|
)
|
$
|
(0.11
|
)
|
||
Weighted
Average Common Shares Outstanding
|
46,073,328
|
24,107,801
|
Consolidated Statement of Stockholders' Deficit
|
||||||||||||||||||||||||
Additional
|
Total
|
|||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Accumulated
|
Noncontrolling
|
Stockholders'
|
|||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Interest
|
Deficit
|
||||||||||||||||||
Balance
- December 31, 2009
|
45,029,894
|
$
|
45,029
|
$
|
7,060,161
|
$
|
(9,267,385
|
)
|
$
|
(1,058,456
|
)
|
$
|
(3,220,651
|
)
|
||||||||||
Issuance
of shares in private placement - Jan. 2010
|
1,000,000
|
1,000
|
1,499,000
|
1,500,000
|
||||||||||||||||||||
Legal,
professional and placement fees
|
(165,000
|
)
|
(165,000
|
)
|
||||||||||||||||||||
Additional
shares issued at $1.10 per share
|
303,030
|
303
|
(303
|
)
|
-
|
|||||||||||||||||||
Issuance
of shares in private placement at $1.10 per share
|
454,545
|
456
|
499,544
|
500,000
|
||||||||||||||||||||
Legal,
professional and placement fees
|
(80,000
|
)
|
(80,000
|
)
|
||||||||||||||||||||
Stock
based compensation
|
87,500
|
87,500
|
||||||||||||||||||||||
Net
loss attributed to noncontrolling interests
|
(294,149
|
)
|
(294,149
|
)
|
||||||||||||||||||||
Net
loss
|
(1,477,530
|
)
|
(1,477,530
|
)
|
||||||||||||||||||||
Balance
- March 31, 2010
|
46,787,469
|
$
|
46,788
|
$
|
8,900,902
|
$
|
(10,744,915
|
)
|
$
|
(1,352,605
|
)
|
$
|
(3,149,830
|
)
|
Three
Months Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
(Restated)
|
||||||||
Cash
Flows From Operating Activities
|
||||||||
Net
loss from continuing operations
|
$
|
(1,503,362
|
)
|
$
|
(
2,735,395
|
)
|
||
Net
(loss) income from discontinued operations
|
25,832
|
(11,980
|
)
|
|||||
Adjustments
to reconcile net loss by cash used in operating
activities:
|
||||||||
Depreciation
|
483,289
|
485,757
|
||||||
Allowance
for doubtful accounts
|
-
|
453,463
|
||||||
Net loss attributable to noncontrolling interests
|
(294,149
|
)
|
(290,502
|
)
|
||||
Gain
on sale of property, plant and equipment
|
(533
|
)
|
-
|
|||||
Stock based
compensation expense
|
87,500
|
-
|
||||||
Amortization
of deferred issuance cost
|
45,000
|
-
|
||||||
Changes
in current assets and liabilities:
|
||||||||
(Increase)
decrease in:
|
||||||||
Trade
receivables
|
(25,000
|
)
|
(18,928
|
)
|
||||
Inventories
|
-
|
36,978
|
||||||
Prepaid
expenses and other assets
|
(32,004
|
)
|
349,937
|
|||||
Current
assets of discontinued operations
|
-
|
15
|
||||||
Increase
(decrease) in:
|
||||||||
Accounts
payable
|
(5,373
|
)
|
(130,047
|
)
|
||||
Accrued
payroll and other current liabilities
|
6,953
|
886,060
|
||||||
Current
liabilities of discontinued operations
|
(25,832
|
)
|
11,966
|
|||||
Net
Cash Used In Operating Activities
|
(1,237,679
|
)
|
(962,676
|
)
|
||||
Cash
Flows From Investing Activities
|
||||||||
Purchases
of property, plant and equipment
|
(64,976
|
)
|
(120,776
|
)
|
||||
Proceeds
from the sale of property, plant and equipment
|
300
|
-
|
||||||
Net
Cash Used in Investing Activities
|
(64,676
|
)
|
(120,776
|
)
|
||||
Cash
Flows From Financing Activities
|
||||||||
Payments
from lines of credit and short-term borrowings
|
-
|
(250,000
|
)
|
|||||
Proceeds
from subordinated debt – related parties, net
|
-
|
75,000
|
||||||
Payments
on subordinated debt - related parties, net
|
(23,539
|
)
|
-
|
|||||
Payments
on long-term debt principal
|
(123,370
|
)
|
(540,869
|
)
|
||||
Issuance
costs
|
(245,000
|
)
|
(750,000
|
)
|
||||
Proceeds
from issuance of common stock
|
2,000,000
|
4,000,000
|
||||||
Net
Cash Provided by Financing Activities
|
1,608,091
|
2,534,131
|
||||||
Net
Increase in Cash and Cash Equivalents
|
305,736
|
1,450,679
|
||||||
Cash
and cash equivalents at beginning of period
|
65,049
|
698,148
|
||||||
Cash
and cash equivalents at end of period
|
$
|
370,785
|
$
|
2,148,827
|
||||
Supplemental
Disclosures of Cash Flow Information
|
||||||||
Interest
paid
|
$
|
38,743
|
$
|
75,237
|
||||
Deferred
issuance costs netted in equity
|
245,000
|
750,000
|
||||||
Insurance
premium financed with debt
|
80,000
|
-
|
As
Previously
|
||||||||||||
Reported
|
Adjustment
|
As
Restated
|
||||||||||
Net
loss attributable to noncontrolling interests
|
$
|
-
|
$
|
290,502
|
$
|
290,502
|
||||||
Loss
from continuing operations
|
$
|
(3,025,897
|
)
|
$
|
290,502
|
$
|
(2,735,395
|
)
|
||||
Net
loss
|
$
|
(3,037,877
|
)
|
$
|
290,502
|
$
|
(2,747,375
|
)
|
||||
Net
loss per share, basic and diluted
|
$
|
(0.13
|
)
|
$
|
0.01
|
$
|
(0.11
|
)
|
March 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
||||||
Plant
and Plant Equipment
|
$
|
7,402,634
|
$
|
7,402,413
|
||||
Office
Furnishings and Equipment
|
333,454
|
274,103
|
||||||
Vehicles
|
51,698
|
51,698
|
||||||
7,787,786
|
7,728,214
|
|||||||
Less
Accumulated Depreciation
|
(4,704,669
|
)
|
(4,227,017
|
)
|
||||
Total
Property, Plant, and Equipment, Net
|
$
|
3,083,117
|
$
|
3,501,197
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Current Assets
|
||||||||
Cash
|
$
|
-
|
$
|
-
|
||||
Total
|
$
|
-
|
$
|
-
|
||||
Current Liabilities
|
||||||||
Accounts
payable
|
$
|
331,138
|
$
|
356,970
|
||||
Total
|
$
|
331,138
|
$
|
356,970
|
March
31,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Note
payable to bank with interest at 6.5%. The note is payable in twelve
monthly installments of $17,560 of principal and interest beginning March
2010 with any remaining unpaid principal and interest due March 2011, with
additional maturity extensions available. This note is secured by
substantially all assets of WBE and guaranteed by the Company and certain
WBE members.
|
$ | 1,362,704 | $ | 1,394,043 | ||||
Payable
to Hermanson Egge to replace overdue payables for construction services
with unsecured agreement, interest at 0% with payments of $70,000 in July
2009, $15,000 monthly from July 2009 to April 2010, $10,000 monthly from
May 2010 to August 2010, $20,000 monthly for September 2010 to November
2010 and $15,000 in December 2010.
|
115,000 | 160,000 | ||||||
Note
payable to Lansing Securities Corp., interest at 10% and the maturity date
has passed and has been temporarily waived by the note holder until
further notice.
|
250,000 | 250,000 | ||||||
Note
payable to Universal Premium Acceptance Corp. for payment of insurance
premiums, interest at 9.24%, payable in monthly principal and interest
installments of $5,239.
|
15,479 | 30,605 | ||||||
Note
payable to Avid Solutions for centrifuge equipment of $195,000, payable in
monthly principal and interest installments of $10,000, including interest
at 10% secured by equipment.
|
- | 6,767 | ||||||
Note
payable to Shimadzu for lab equipment of $32,114, payable in monthly
principal and interest installments of $1,072, including interest at 13.6%
secured by equipment.
|
17,372 | 19,095 | ||||||
Note
payable to First Insurance Funding Corporation for payment of director and
officer insurance premiums, payable in monthly installments of $3,692,
including interest at 9.1%.
|
56,585 | - | ||||||
536,461 | 560,000 | |||||||
Subtotal
|
$ | 2,353,601 | $ | 2,420,510 | ||||
Less
current maturities of long-term debt
|
(2,181,596 | ) | (2,113,889 | ) | ||||
Total
Long-Term Debt
|
$ | 172,005 | $ | 306,621 |
As of
March 31,
2010
|
As of
December
31,
2009
|
|||||||
Identifiable
Fixed Assets:
|
||||||||
Engineering
and management contracts
|
$
|
332
|
$
|
326
|
||||
Biofuel
research and development
|
7,456
|
7,402
|
||||||
Total
|
7,788
|
7,728
|
||||||
Accumulated
depreciation
|
(
4,705
|
)
|
(
4,227
|
)
|
||||
Total
Identifiable Fixed Assets
|
$
|
3,083
|
$
|
3,501
|
||||
For
the Three Months
Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
Revenues:
|
||||||||
Engineering
and management contracts
|
$
|
-
|
$
|
-
|
||||
Biofuel
research and development
|
120
|
-
|
||||||
Total
Revenues
|
$
|
120
|
$
|
-
|
||||
Depreciation:
|
||||||||
Engineering
and management contracts
|
$
|
15
|
$
|
16
|
||||
Biofuel
research and development
|
468
|
470
|
||||||
Total
Depreciation
|
$
|
483
|
$
|
486
|
||||
Interest
Expense:
|
||||||||
Engineering
and management contracts
|
$
|
18
|
$
|
41
|
||||
Biofuel
research and development
|
22
|
34
|
||||||
Total
Interest Expense
|
$
|
40
|
$
|
75
|
March 31,
|
December
31,
|
||||||
2010
|
2009
|
||||||
(unaudited)
|
|||||||
Beginning
of period
|
$
|
(1,058,456
|
)
|
$
|
193,399
|
||
Net
loss attributable to noncontrolling interests
|
(294,149
|
)
|
(1,251,855
|
)
|
|||
End
of period
|
$
|
(1,352,605
|
)
|
$
|
(1,058,456
|
)
|
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
Balance
Sheets at December 31, 2009 and 2008
|
F-4
|
|
Statements
of Operations for the years ended December 31, 2009 and
2008
|
F-5
|
|
Statement
of Changes in Shareholders’ Deficit
|
F-6
|
|
Statements
of Cash Flows for the years ended December 31, 2009 and
2008
|
F-7
|
|
Notes
to Financial Statements
|
F-8 to F-29
|
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
65,049
|
$
|
698,101
|
||||
Trade
receivables, net of allowance for doubtful accounts of $393,840 and
$381,681, respectively
|
35,000
|
470,322
|
||||||
Accounts
receivable - related parties
|
1,034
|
-
|
||||||
Inventories
|
14,975
|
88,255
|
||||||
Prepaid
expenses and other assets
|
138,765
|
101,180
|
||||||
Deferred
issuance costs
|
135,000
|
320,000
|
||||||
Current
assets of discontinued operations
|
-
|
427
|
||||||
Total
Current Assets
|
389,823
|
1,678,285
|
||||||
Non-Current
Assets
|
||||||||
Property,
Plant and Equipment, Net
|
3,501,197
|
5,253,916
|
||||||
Total
Assets
|
$
|
3,891,020
|
$
|
6,932,201
|
||||
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
Current
Liabilities
|
||||||||
Lines
of credit & short-term borrowings
|
$
|
-
|
$
|
250,000
|
||||
Current
maturities of long-term debt
|
1,851,389
|
1,015,482
|
||||||
Current
maturities of subordinated debt-related party
|
262,500
|
40,000
|
||||||
Accounts
payable
|
1,672,156
|
2,256,893
|
||||||
Accounts
payable-related parties
|
48,234
|
186,270
|
||||||
Billings
in excess of costs and estimated earnings
|
||||||||
on
uncompleted contracts
|
1,640,588
|
2,039,496
|
||||||
Accrued
payroll
|
203,161
|
222,361
|
||||||
Other
liabilities
|
770,052
|
307,314
|
||||||
Accrued
issuance costs
|
-
|
320,000
|
||||||
Current
liabilities of discontinued operations
|
356,970
|
369,812
|
||||||
Total
Current Liabilities
|
6,805,050
|
7,007,627
|
||||||
Long-term
debt, less current maturities
|
9,121
|
1,401,283
|
||||||
Long-term
debt-subordinated-related party
|
297,500
|
560,000
|
||||||
Total
Long-Term Debt
|
306,621
|
1,961,283
|
||||||
Stockholders'
Deficit
|
||||||||
Common
stock, $0.001 par value; 150,000,000 shares authorized;
45,029,894 and 15,622,953 shares issued and outstanding as of December 31,
2009 and 2008, respectively
|
45,029
|
15,623
|
||||||
Additional
paid-in capital
|
7,060,161
|
26,842
|
||||||
Accumulated
deficit
|
(9,267,385
|
)
|
(2,272,574
|
)
|
||||
Noncontrolling
interests
|
(1,058,456
|
)
|
193,399
|
|||||
Total
Stockholders' Deficit
|
(3,220,651
|
)
|
(2,036,710
|
)
|
||||
Total
Liabilities and Stockholders' Deficit
|
$
|
3,891,020
|
$
|
6,932,201
|
|
Years Ended
|
|||||||
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Revenue
|
||||||||
Engineering
and management contract
|
$
|
-
|
$
|
4,009,825
|
||||
Total
Revenue
|
-
|
4,009,825
|
||||||
Operating
Expenses
|
||||||||
Cost
of engineering and management contract
|
-
|
1,959,202
|
||||||
General
and administrative
|
4,647,240
|
4,344,651
|
||||||
Research
and development
|
3,324,980
|
2,704,717
|
||||||
Total
Operating Expenses
|
7,972,220
|
9,008,570
|
||||||
Loss
from Operations
|
(7,972,220
|
)
|
(4,998,744
|
)
|
||||
Other
Income (Expense):
|
||||||||
Other
expense
|
(116,289
|
)
|
(165,723
|
)
|
||||
Interest
income
|
48,522
|
(6,954
|
)
|
|||||
Interest
expense
|
(194,679
|
)
|
(1,914,187
|
)
|
||||
Total
Other Expense, Net
|
(262,446
|
)
|
(2,086,864
|
)
|
||||
Loss
From Continuing Operations and Before
|
||||||||
Net
Loss Attributable to Noncontrolling Interest
|
(8,234,666
|
)
|
(7,085,608
|
)
|
||||
Net
loss attributable to noncontrolling interests
|
1,251,855
|
99,591
|
||||||
Loss
From Continuing Operations
|
(6,982,811
|
)
|
(6,986,017
|
)
|
||||
Loss from
discontinued operations
|
(12,000
|
)
|
(406,815
|
)
|
||||
Net
Loss
|
$
|
(6,994,811
|
)
|
$
|
(7,392,832
|
)
|
||
Net
Loss Per Share, basic and diluted:
|
||||||||
Continuing
operations
|
$
|
(0.19
|
)
|
$
|
(0.62
|
)
|
||
Discontinued
operations
|
(0.00
|
)
|
(0.03
|
)
|
||||
Total
|
$
|
(0.19
|
)
|
$
|
(0.65
|
)
|
||
Weighted
Average Common Shares Outstanding-Proforma
|
36,618,280
|
11,342,697
|
Additional
|
Total
|
|||||||||||||||||||||||||||
Common Stock
|
Stockholders'
|
Paid-In
|
Accumulated
|
Noncontrolling
|
Stockholders'
|
|||||||||||||||||||||||
Shares
|
Amount
|
Contributions
|
Capital
|
Deficit
|
Interest
|
Deficit
|
||||||||||||||||||||||
Balance
- December 31, 2007
|
- | $ | - | $ | 9,000 | $ | - | $ | (1,916,219 | ) | $ | 292,990 | $ | (1,614,229 | ) | |||||||||||||
KL
Process Design Group - post merger net loss – September 30,
2008
|
- | - | - | - | (5,120,258 | ) | (5,120,258 | ) | ||||||||||||||||||||
Consideration
for pre-Merger shareholders
|
3,390,000 | 3,390 | 3,390 | |||||||||||||||||||||||||
Conversion
of equity in reverse merger acquisition
|
9,900,266 | 9,901 | (9,000 | ) | (7,040,768 | ) | 7,036,477 | (3,390 | ) | |||||||||||||||||||
Conversion
of debt to equity, net of unamortized debt discount
|
2,288,000 | 2,288 | - | 4,197,712 | - | 4,200,000 | ||||||||||||||||||||||
Equity
payment to placement agent upon conversion of debt to
equity
|
- | - | - | (305,000 | ) | - | (305,000 | ) | ||||||||||||||||||||
Conversion
of derivative liability to equity
|
- | - | - | 3,050,000 | - | 3,050,000 | ||||||||||||||||||||||
Shares
issued for accrued interest on convertible debt
|
38,437 | 38 | - | 102,462 | - | 102,500 | ||||||||||||||||||||||
Issuance
of shares in private placement (net of issuance costs of
$2,557)
|
6,250 | 6 | - | 22,436 | - | 22,442 | ||||||||||||||||||||||
Net
loss attributed to noncontrolling interests
|
- | - | - | - | - | (99,591 | ) | (99,591 | ) | |||||||||||||||||||
KL
Energy Corporation - net loss - 4th quarter 2008
|
- | - | - | - | (2,272,574 | ) | (2,272,574 | ) | ||||||||||||||||||||
Balance
- December 31, 2008
|
15,622,953 | $ | 15,623 | $ | - | $ | 26,842 | $ | (2,272,574 | ) | $ | 193,399 | $ | (2,036,710 | ) | |||||||||||||
Issuance
of shares in private placement
|
18,181,818 | 18,182 | - | 3,981,818 | - | - | 4,000,000 | |||||||||||||||||||||
Issuance
of shares in settlement of payables
|
5,205,569 | 5,206 | - | 1,140,019 | - | - | 1,145,225 | |||||||||||||||||||||
Issuance
of shares in private placement
|
4,545,454 | 4,545 | - | 995,455 | 1,000,000 | |||||||||||||||||||||||
Issuance
of shares in settlement of accrued liabilities
|
95,312 | 95 | 152,405 | 152,500 | ||||||||||||||||||||||||
Issuance
of shares in private placement at $1.50 per share
|
1,233,333 | 1,233 | - | 1,848,767 | 1,850,000 | |||||||||||||||||||||||
Additional
shares issued at $1.10 per share
|
145,455 | 145 | (145 | ) | - | |||||||||||||||||||||||
Legal,
professional and placement fees
|
- | - | - | (1,085,000 | ) | (1,085,000 | ) | |||||||||||||||||||||
Net
loss attributed to noncontrolling interests
|
- | - | - | - | (1,251,855 | ) | (1,251,855 | ) | ||||||||||||||||||||
Net
loss
|
- | - | - | - | (6,994,811 | ) | - | (6,994,811 | ) | |||||||||||||||||||
Balance
- December 31, 2009
|
45,029,894 | $ | 45,029 | $ | - | $ | 7,060,161 | $ | (9,267,385 | ) | $ | (1,058,456 | ) | $ | (3,220,651 | ) |
Year Ended
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash Flows From Operating Activities
|
||||||||
Net loss from continuing operations
|
$ | (6,982,811 | ) | $ | (6,986,017 | ) | ||
Net (loss) income from discontinued operations
|
(12,000 | ) | (406,815 | ) | ||||
Adjustments to reconcile net loss by cash used in operating activities:
|
||||||||
Depreciation
|
1,900,843 | 1,791,768 | ||||||
Allowance for doubtful accounts
|
12,159 | 147,171 | ||||||
Noncontrolling interest in net loss of subsidiaries
|
(1,251,855 | ) | (99,591 | ) | ||||
Loss on sale of assets
|
48,821 | 39,644 | ||||||
Amortization of debt issuance cost
|
- | 305,000 | ||||||
Amortization of debt discount
|
- | 1,150,000 | ||||||
Changes in current assets and liabilities:
|
||||||||
(Increase) decrease in:
|
||||||||
Trade receivables
|
422,129 | 853,533 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts
|
- | 168,890 | ||||||
Inventories
|
73,280 | 104,656 | ||||||
Prepaid expenses and other assets
|
21,150 | 149,626 | ||||||
Current assets of discontinued operations
|
427 | 41,774 | ||||||
Increase (decrease) in:
|
||||||||
Accounts payable
|
(387,773 | ) | (562,015 | ) | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts
|
(398,908 | ) | (810,727 | ) | ||||
Accrued payroll and other liabilities
|
1,106,263 | 369,057 | ||||||
Current liabilities of discontinued operations
|
(12,842 | ) | (369,812 | ) | ||||
Net Cash Provided by (Used In) Operating Activities
|
(5,461,117 | ) | (4,113,858 | ) | ||||
Cash Flows From Investing Activities
|
||||||||
Purchases of property, plant and equipment
|
(164,056 | ) | (845,310 | ) | ||||
Proceeds from the sale of fixed assets
|
(775 | ) | 689,080 | |||||
Net Cash Provided by (Used in) Investing Activities
|
(164,831 | ) | (156,230 | ) | ||||
Cash Flows From Financing Activities
|
||||||||
Proceeds (payments) from lines of credit and short-term borrowings
|
(250,000 | ) | (130,000 | ) | ||||
Proceeds from subordinated debt – related parties, net
|
- | 250,000 | ||||||
Payments on subordinated debt - related parties, net
|
(40,000 | ) | - | |||||
Payments on long-term debt principal
|
(982,104 | ) | (855,553 | ) | ||||
Proceeds from convertible debt
|
- | 6,100,000 | ||||||
Issuance costs
|
(585,000 | ) | (612,557 | ) | ||||
Proceeds from issuance of common stock
|
6,850,000 | 25,000 | ||||||
Net Cash Provided by (Used in) Financing Activities
|
4,992,896 | 4,776,890 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents
|
(633,052 | ) | 506,802 | |||||
Cash and cash equivalents at beginning of period
|
698,101 | 191,299 | ||||||
Cash and cash equivalents at end of period
|
$ | 65,049 | $ | 698,101 | ||||
Supplemental Disclosures of Cash Flow Information
|
||||||||
Interest paid
|
$ | 116,878 | $ | 463,673 | ||||
Conversion of accounts payable and accrued liabilities to common stock
|
937,725 | - | ||||||
Conversion of deferred issuance costs liability to common stock
|
45,000 | - | ||||||
Deferred issuance costs netted in equity
|
185,000 | - | ||||||
Deferred issuance costs paid in common stock
|
315,000 | |||||||
Settlement of accounts payable with debt
|
335,000 | - | ||||||
Insurance premium financed with debt
|
58,735 | 78,496 | ||||||
Purchase of equipment with note payable
|
32,114 | 156,000 | ||||||
Return of asset for reduction in accounts payable
|
- | 101,093 | ||||||
Debt converted to equity
|
- | 6,100,000 | ||||||
Accrued interest converted to equity
|
- | 102,500 | ||||||
Debt issuance costs for convertible debt
|
- | 305,000 | ||||||
Accrued issuance costs
|
- | 320,000 |
Years
|
||
Plant
and Plant Equipment
|
5
|
|
Office
Furnishings and Equipment
|
3-7
|
|
Vehicles
|
5-10
|
|
December 31,
|
|||||||
|
2009
|
2008
|
||||||
Plant
and Plant Equipment
|
$
|
7,402,413
|
$
|
7,348,028
|
||||
Office
Furnishings and Equipment
|
274,103
|
187,801
|
||||||
Vehicles
|
51,698
|
51,698
|
||||||
7,728,214
|
7,587,527
|
|||||||
Less
Accumulated Depreciation
|
(4,227,017
|
)
|
(2,333,611
|
)
|
||||
Total
Property, Plant, and Equipment, Net
|
$
|
3,501,197
|
$
|
5,253,916
|
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Costs
Incurred on Uncompleted Contracts
|
$ | 5,112,225 | $ | 5,112,225 | ||||
Estimated
Earnings
|
2,421,920 | 2,023,012 | ||||||
7,534,145 | 7,135,237 | |||||||
Less
Billings to Date
|
(9,174,733 | ) | (9,174,733 | ) | ||||
$ | (1,640,588 | ) | $ | (2,039,496 | ) | |||
Included
in the Balance Sheet Under the Following Captions:
|
||||||||
Costs
and Estimated Earnings in Excess of Billings on Uncompleted
Contracts
|
$ | — | $ | — | ||||
Billings
in Excess of Costs and Estimated Earnings on Uncompleted
Contracts
|
(1,640,588 | ) | (2,039,496 | ) | ||||
$ | (1,640,588 | ) | $ | (2,039,496 | ) |
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Note payable to bank with interest at 6.5%. The note is payable in
|
||||||||
twelve monthly installments of $17,560 of principal and interest
|
||||||||
beginning March 2009 with any remaining unpaid principal and
|
||||||||
interest due March 2010, secured by substantially all assets of
|
||||||||
WBE and guaranteed by the Company and certain WBE members.
|
$ | 1,394,043 | $ | 1,984,949 | ||||
Payable to Hermanson Egge to replace over due payables for
|
||||||||
construction services with unsecured agreement, interest at 0%
|
||||||||
with payments of $70,000 in July 2009, $15,000 monthly from
|
||||||||
July 2009 to April 2010, $10,000 monthly from May 2010 to
|
||||||||
August 2010, $20,000 monthly for September 2010 to November
|
||||||||
2010 and $15,000 in December 2010.
|
160,000 | - | ||||||
Note payable to Lansing Securities Corp., interest at 10% and the
|
||||||||
maturity date has passed and has been temporarily waived by the
|
||||||||
note holder until further notice.
|
250,000 | 250,000 | ||||||
Note payable to Universal Premium Acceptance Corp. for
|
||||||||
payment of insurance premiums, interest at 9.24%, payable in
|
||||||||
monthly principal and interest installments of $5,239.
|
30,605 | 33,816 | ||||||
$195,000, payable in monthly principal and interest installments
|
||||||||
of $10,000, including interest at 10% secured by equipment.
|
6,767 | 116,000 | ||||||
Note payable to Shimadzu for lab equipment of $32,114, payable
|
||||||||
in monthly principal and interest installments of $1,072, including
|
||||||||
interest at 13.6% secured by equipment.
|
19,095 | |||||||
Note payable to First Insurance Funding Corporation for payment
|
||||||||
of director and officer insurance premiums, payable in monthly
|
||||||||
installments of $3,692, including interest at 9.1%.
|
- | 32,000 | ||||||
Subordinated note (Note 10) payable to Randy Kramer and
|
||||||||
assigned to First National Bank, interest at 5.0%, secured by
|
||||||||
accounts receivable of the Company, payable in monthly
|
||||||||
installments of $10,000 per month plus interest beginning
|
||||||||
September 2009 and 5% of equity financings after February 2009.
|
560,000 | 600,000 | ||||||
Sub total
|
$ | 2,420,510 | $ | 3,016,765 | ||||
Less current maturities of long-term debt
|
(2,113,889 | ) | (1,055,482 | ) | ||||
Total Long-Term Debt
|
$ | 306,621 | $ | 1,961,283 |
|
Unrelated
|
Related
|
||||||||||
Year
|
Total
|
Party
|
Party
|
|||||||||
2010
|
$ | 2,113,889 | $ | 1,851,389 | $ | 262,500 | ||||||
2011
|
129,121 | 9,121 | 120,000 | |||||||||
2012
|
120,000 | - | 120,000 | |||||||||
2013
|
57,500 | - | 57,500 | |||||||||
2014
|
- | - | - | |||||||||
$ | 2,420,510 | $ | 1,860,510 | $ | 560,000 |
|
Year
Ended
|
Year
Ended
|
||||||||||||||||||||||||||
|
December
31,
|
March 31,
2008
|
June 30, 2008
|
September 30, 2008
|
December
31,
|
|||||||||||||||||||||||
|
2007
|
3 Months
|
3 Months
|
6 Months
|
3 Months
|
9 Months
|
2008
|
|||||||||||||||||||||
NET
LOSS
|
$
|
(1,391,828
|
)
|
$
|
(1,361,374
|
)
|
$
|
(738,340
|
)
|
$
|
(2,099,714
|
)
|
$
|
(2,965,450
|
)
|
$
|
(5,065,254
|
)
|
$
|
(7,392,832
|
)
|
|||||||
EPS
AS REPORTED:
|
||||||||||||||||||||||||||||
Weighted
Avg Shares Outstanding
|
15,623,452
|
24,107,801
|
36,436,158
|
30,306,036
|
15,612,348
|
15,612,348
|
15,623,452
|
|||||||||||||||||||||
Earnings
per share reported *
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
$
|
(0.19
|
)
|
$
|
(0.32
|
)
|
$
|
(0.47
|
)
|
|||||||
EPS
AS CORRECTED:
|
||||||||||||||||||||||||||||
Weighted
Avg Shares Outstanding
|
9,900,266
|
9,900,266
|
9,900,266
|
9,900,266
|
9,900,266
|
9,900,266
|
11,342,697
|
|||||||||||||||||||||
Earnings
per share corrected *
|
$
|
(0.14
|
)
|
$
|
(0.14
|
)
|
$
|
(0.07
|
)
|
$
|
(0.21
|
)
|
$
|
(0.30
|
)
|
$
|
(0.51
|
)
|
$
|
(0.65
|
)
|
2009
|
2008
|
|||||||
Deferred
Tax Assets
|
||||||||
Investment
in Flow-Through Entities
|
$
|
1,071,516
|
$
|
185,202
|
||||
Allowance
for Doubtful Accounts
|
216,075
|
152,213
|
||||||
Accrued
professional fees
|
151,598
|
-
|
||||||
Accrued
Vacation
|
14,973
|
14,899
|
||||||
R&D
Credit
|
24,995
|
6,312
|
||||||
Net
Operating Loss
|
2,165,118
|
372,660
|
||||||
Total
Deferred Tax Asset
|
3,644,275
|
731,286
|
||||||
Deferred
Tax Liabilities
|
||||||||
Prepaid
Expense
|
14,467
|
28,270
|
||||||
Property
and Equipment
|
11,356
|
10,144
|
||||||
Total
Deferred Tax Liabilities
|
25,823
|
38,414
|
||||||
Net
Deferred Tax Asset
|
3,618,452
|
692,872
|
||||||
Less
Valuation Allowance
|
(3,618,452
|
)
|
(692,872
|
)
|
||||
Net
Deferred Taxes
|
$
|
-
|
$
|
-
|
2009
|
2008
|
|||||||
Computed
"Expected" Tax Expense (Benefit)
|
$
|
(2,803,867
|
)
|
$
|
(2,548,883
|
)
|
||
Loss
Prior to Merger not Subject to Income Taxes
|
-
|
1,756,703
|
||||||
R&D
Credits
|
(24,995
|
)
|
-
|
|||||
Nondeductible
Expenses
|
3,139
|
52,625
|
||||||
Change
in valuation allowance
|
2,925,580
|
692,872
|
||||||
Other,
net
|
(99,857
|
)
|
46,683
|
|||||
Income
Tax Benefit
|
$
|
-
|
$
|
-
|
2009
|
2008
|
|||||||
Beginning
of year
|
$
|
193,399
|
$
|
292,990
|
||||
Estimated
losses
|
(1,251,855
|
)
|
(99,591
|
)
|
||||
End
of year
|
$
|
(1,058,456
|
)
|
$
|
193,399
|
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Identifiable
Fixed Assets:
|
||||||||
Engineering
and management contract
|
$ | 326 | $ | 239 | ||||
Biofuel
research and development
|
7,402 | 7,349 | ||||||
Total
|
7,728 | 7,588 | ||||||
Accumulated
Depreciation
|
(4,227 | ) | (2,334 | ) | ||||
Total
Identifiable Fixed Assets
|
$ | 3,501 | $ | 5,254 |
For the Year Ended December
31,
|
||||||||
2009
|
2008
|
|||||||
Depreciation
:
|
||||||||
Engineering
and management contract
|
$ | 43 | $ | 74 | ||||
Biofuel
research and development
|
1,858 | 1,718 | ||||||
Total
Depreciation
|
$ | 1,901 | $ | 1,792 | ||||
Interest
Expense:
|
||||||||
Engineering
and management contract
|
$ | 96 | $ | 1,720 | ||||
Biofuel
research and development
|
99 | 194 | ||||||
Total
Interest Expense
|
$ | 195 | $ | 1,914 |
NATURE OF EXPENSE
|
AMOUNT *
|
|||
SEC
Registration fee
|
$ | 2,139 | ||
Accounting
fees and expenses
|
10,000 | |||
Legal
fees and expenses
|
40,000 | |||
Printing
and related expenses
|
3,000 | |||
TOTAL
|
$ | 55,139 |
Exhibit
Number
|
Description
|
|
1.1
|
Form
of Underwriting Agreement
|
|
2.1
|
Agreement
and Plan of Merger dated September 30, 2008 between the registrant and KL
Process Design Group, LLC (filed on October 7, 2008 as Exhibit 2.1 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
2.2
|
Agreement
of Merger dated September 30, 2008 between the registrant and KL Process
Design Group, LLC (filed on October 7, 2008 as Exhibit 2.2 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
2.3
|
Articles
of Merger dated September 30, 2008 between the registrant and KL Process
Design Group, LLC (filed on October 7, 2008 as Exhibit 2.3 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
2.4
|
Securities
Purchase Agreement dated September 30, 2008 between the registrant and
certain investors (filed on October 7, 2008 as Exhibit 2.4 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
3.1
|
Articles
of Incorporation, incorporated by reference to our Registration Statement
on Form SB-2, filed August 7, 2007
|
|
3.2
|
Amended
and Restated Bylaws of the Company, incorporated by reference to our
Annual Report on Form 10-K for the year ended December 31,
2009, filed March 9, 2010
|
|
5.1
|
Holland
& Hart LLP Legal Opinion
|
|
10.1
|
Securities
Purchase Agreement dated September 30, 2008 between the registrant and
certain investors (filed on October 7, 2008 as Exhibit 10.1 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
10.2
|
Form
of Common Stock Purchase Warrant (filed on October 7, 2008 as Exhibit 10.2
to the registrant’s Report on Form 8-K (File No. 000-52773) and
incorporated herein by reference).
|
|
10.3
|
Performance
Escrow Agreement dated September 30, 2008 between the registrant and
certain shareholders (filed on October 7, 2008 as Exhibit 10.3 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
10.4
|
Employment
Agreement dated September 30, 2008 between the registrant and Randy Kramer
(filed on October 7, 2008 as Exhibit 10.4 to the registrant’s Report on
Form 8-K (File No. 000-52773) and incorporated herein by
reference).
|
|
10.5
|
Employment
Agreement dated January 1, 2010 between the registrant and David Litzen,
incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.6
|
Employment
Agreement dated January 1, 2010 between the registrant and Dennis Harstad,
incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.7
|
Employment
Agreement dated January 1, 2010 between the registrant and Steve Corcoran,
incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
10.8
|
Term
Loan Agreement, dated October 9, 2008, between the registrant and O2Diesel
Corporation.
|
10.9
|
Secured
Promissory Note, dated October 9, 2008, from O2Diesel Corporation in favor
of the registrant.
|
10.10
|
Supply
and Distribution Agreement, dated October 9, 2008, between the registrant
and O2Diesel Corporation.
|
|
10.11
|
Securities
Purchase Agreement, dated February 24, 2009, between the registrant and
certain investors listed on the signature pages
thereto.
|
|
10.12
|
Amendment
to Loan Agreement, dated March 27, 2009 between Western Biomass Energy,
LLC and Security National Bank of Omaha, and related Guaranty by
registrant.
|
|
10.13
|
Securities
Purchase Agreement, dated October 2, 2009, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9, 2010
|
|
|
||
10.14
|
Securities
Purchase Agreement, dated November 17, 2009, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.15
|
Securities
Purchase Agreement, dated December 16, 2009, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.16
|
Securities
Purchase Agreement, dated January 6, 2010, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.17
|
Consulting
agreement between the registrant and CMN, Inc./Alan Rae, incorporated
by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9, 2010
|
|
10.18
|
Consulting
agreement between the registrant and Steven Corcoran, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9, 2010
|
|
|
||
10.19
|
Promissory
Note between registrant and Randy Kramer, incorporated by reference to our
Annual Report on Form 10-K for the year ended December 31,
2009, filed March 9, 2010
|
|
16.1
|
Letter
from Moore & Associates, Chartered (filed on October 7, 2008 as
Exhibit 16.1 to the registrant’s Report on Form 8-K (File No. 000-52773)
and incorporated herein by reference).
|
|
21
|
List
of Subsidiaries.
|
|
23.1*
|
Consent
of Ehrhardt, Keefe, Steiner & Hottman PC
|
|
23.2
|
Consent
of Holland & Hart LLP contained in their opinion filed as Exhibit 5.1
hereto
|
KL
Energy Corporation
|
|||
By:
|
/s/
Peter Gross
|
||
Peter
Gross, President,
and
Chief Executive Officer
|
SIGNATURE
|
TITLE
|
DATE
|
||
/s/
Peter Gross
|
President
and Chief Executive Officer
|
June
18, 2010
|
||
Peter
Gross
|
||||
/s/ Thomas Bolan
|
Acting
Chief Financial Officer
|
June
18, 2010
|
||
Thomas
Bolan
|
||||
/s/
Thomas
Schueller
|
Director
|
June
18, 2010
|
||
Thomas
Schueller
|
||||
/s/ Alan Rae
|
Director
|
June
18, 2010
|
||
Alan
Rae
|
||||
/s/ Alain Vignon
|
Director
|
June
18, 2010
|
||
Alain
Vignon
|
|
|
Exhibit
Number
|
Description
|
|
1.1
|
Form
of Underwriting Agreement
|
|
2.1
|
Agreement
and Plan of Merger dated September 30, 2008 between the registrant and KL
Process Design Group, LLC (filed on October 7, 2008 as Exhibit 2.1 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
2.2
|
Agreement
of Merger dated September 30, 2008 between the registrant and KL Process
Design Group, LLC (filed on October 7, 2008 as Exhibit 2.2 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
2.3
|
Articles
of Merger dated September 30, 2008 between the registrant and KL Process
Design Group, LLC (filed on October 7, 2008 as Exhibit 2.3 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
2.4
|
Securities
Purchase Agreement dated September 30, 2008 between the registrant and
certain investors (filed on October 7, 2008 as Exhibit 2.4 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
3.1
|
Articles
of Incorporation, incorporated by reference to our Registration Statement
on Form SB-2, filed August 7, 2007
|
|
3.2
|
Amended
and Restated Bylaws of the Company, incorporated by reference to our
Annual Report on Form 10-K for the year ended December 31,
2009, filed March 9, 2010
|
|
5.1
|
Holland
& Hart LLP Legal Opinion
|
|
10.1
|
Securities
Purchase Agreement dated September 30, 2008 between the registrant and
certain investors (filed on October 7, 2008 as Exhibit 10.1 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
10.2
|
Form
of Common Stock Purchase Warrant (filed on October 7, 2008 as Exhibit 10.2
to the registrant’s Report on Form 8-K (File No. 000-52773) and
incorporated herein by reference).
|
|
10.3
|
Performance
Escrow Agreement dated September 30, 2008 between the registrant and
certain shareholders (filed on October 7, 2008 as Exhibit 10.3 to the
registrant’s Report on Form 8-K (File No. 000-52773) and incorporated
herein by reference).
|
|
10.4
|
Employment
Agreement dated September 30, 2008 between the registrant and Randy Kramer
(filed on October 7, 2008 as Exhibit 10.4 to the registrant’s Report on
Form 8-K (File No. 000-52773) and incorporated herein by
reference).
|
|
10.5
|
Employment
Agreement dated January 1, 2010 between the registrant and David Litzen,
incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.6
|
Employment
Agreement dated January 1, 2010 between the registrant and Dennis Harstad,
incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.7
|
Employment
Agreement dated January 1, 2010 between the registrant and Steve Corcoran,
incorporated by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
10.8
|
Term
Loan Agreement, dated October 9, 2008, between the registrant and O2Diesel
Corporation.
|
|
10.9
|
|
Secured
Promissory Note, dated October 9, 2008, from O2Diesel Corporation in favor
of the registrant.
|
10.10
|
Supply
and Distribution Agreement, dated October 9, 2008, between the registrant
and O2Diesel Corporation.
|
|
10.11
|
Securities
Purchase Agreement, dated February 24, 2009, between the registrant and
certain investors listed on the signature pages
thereto.
|
10.12
|
Amendment
to Loan Agreement, dated March 27, 2009 between Western Biomass Energy,
LLC and Security National Bank of Omaha, and related Guaranty by
registrant.
|
|
10.13
|
Securities
Purchase Agreement, dated October 2, 2009, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.14
|
Securities
Purchase Agreement, dated November 17, 2009, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.15
|
Securities
Purchase Agreement, dated December 16, 2009, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.16
|
Securities
Purchase Agreement, dated January 6, 2010, between the registrant and a
certain investor listed on the signature page thereto, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9,
2010.
|
|
10.17
|
Consulting
agreement between the registrant and CMN, Inc./Alan Rae, incorporated
by reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9, 2010
|
|
10.18
|
Consulting
agreement between the registrant and Steven Corcoran, incorporated by
reference to our Annual Report on Form 10-K for the year
ended December 31, 2009, filed March 9, 2010
|
|
10.19
|
Promissory
Note between registrant and Randy Kramer, incorporated by reference to our
Annual Report on Form 10-K for the year ended December 31,
2009, filed March 9, 2010
|
|
16.1
|
Letter
from Moore & Associates, Chartered (filed on October 7, 2008 as
Exhibit 16.1 to the registrant’s Report on Form 8-K (File No. 000-52773)
and incorporated herein by reference).
|
|
21
|
|
List
of Subsidiaries.
|
23.1*
|
Consent
of Ehrhardt, Keefe, Steiner & Hottman PC
|
|
23.2
|
Consent
of Holland & Hart LLP contained in their opinion filed as Exhibit 5.1
hereto
|